A merger between two UK oilfield services companies, Wood Group and Amec Foster Wheeler, has hit a stumbling block at home after a competition authority said the merger gives rise to concerns.
To remind, Wood Group launched the offer for Amec Foster Wheeler back in March. Under the offer, each Amec Foster Wheeler shareholder would receive for each Amec Foster Wheeler share 0.75 new Wood Group shares.
The offer, valuing AFW at around $2.72 billion, was approved by shareholders of both companies in June, but remained subject to relevant clearances from competition authorities in certain countries where both companies operate.
According to Wood Group’s statement on Wednesday, the UK’s Competition and Markets Authority (CMA) has determined that the acquisition of Amec Foster Wheeler by Wood Group gives rise to competition concerns in the supply of engineering and construction (E&C) services and operation and maintenance (O&M) services on the UK continental shelf.
WG-AFW two main suppliers
The CMA said that the concerns were raised because the companies currently compete closely with each other, and are two of the main suppliers of these services; the merger will reduce the number of major players currently active in these markets from 4 to 3; there are concerns that competition from other suppliers may not be sufficient to mitigate competition worries; and other suppliers seeking to enter the market or expand their UK presence may face significant barriers to doing so.
Recognizing the potential for this type of decision, Wood Group noted on Wednesday it had previously made a proposal to the CMA of a remedy for this issue. The proposed remedy was in respect of assets and operations of Amec Foster Wheeler that represent the majority of Amec Foster Wheeler’s UK upstream oil and gas business located in the UK and serving UK customers, excluding its commissioning business, qedi.
Wood Group emphasized it has been working constructively with the CMA to progress consideration of this remedy. The company will now formally submit the remedy proposal to the CMA and the authority will provisionally decide whether this remedy proposal is sufficient by August 16, 2017, at the latest, with its final decision due by October 11, 2017.
The authority said that if remedies offered do not sufficiently address the competition concerns that the CMA has identified, the merger will be referred for an in-depth ‘phase 2’ investigation.
Both Wood Group and Amec Foster Wheeler consider that the proposed remedy is sufficient to address the CMA’s competition concerns and to obtain clearance, Wood Group said. The M&A process for this remedy is already at an advanced stage.
Amec Foster Wheeler started a formal marketing process in May, which has attracted interest and is progressing well, the statement said. As a result, Wood Group and Amec Foster Wheeler continue to expect the combination to complete in the fourth quarter of 2017.
Kate Collyer, Deputy Chief Economic Adviser and the decision maker in this case, said that due to Wood Group and Amec Foster Wheeler’s particularly strong market position in the supply of services to the upstream offshore oil and gas sector in the UK, the merger would remove the rivalry between two of the four main suppliers of these services.
“Based on our initial investigation, this could significantly reduce customers’ ability to obtain competitive bids, which could lead to increased prices and affect the competitiveness of the oil and gas industry in the UK,” Collyer added.
Collyer also said that, unless the companies offer suitable proposals to address the concerns, this merger will warrant an in-depth investigation.
‘Committed’ to 4Q closure
Commenting on today’s announcement, Robin Watson, Chief Executive of Wood Group said “Both sets of shareholders overwhelmingly supported the proposed combination and we continue to believe that the proposed remedy will be sufficient to obtain clearance from the CMA. We remain fully committed to completing the transaction in quarter four this year.”
Commenting on the CMA’s announcement, Jon Lewis, Chief Executive Officer at Amec Foster Wheeler, said: “Since the announcement of the remedy offer in May, Amec Foster Wheeler has made good progress marketing its UK upstream oil and gas business to a range of potential buyers and is continuing the divestment process.”
The CMA is not the only one concerned over the merger of two giants. Namely, as soon as the merger was announced, UK’s offshore union Unite demanded full disclosure on any employment plans that are part of Wood Group’s planned takeover of Amec Foster Wheeler.
It is also worth mentioning that Amec Foster Wheeler is under investigation by the UK Serious Fraud Office (SFO). The investigation, launched in July, is focusing on the possible bribery and corruption and related offences. However, the company claimed it would not affect its merger with Wood Group.
According to Rystad Energy, an energy intelligence group, this merger would create a clear market leader within the engineering and MMO-market, with a market share twice as large as its competitors and a combined workforce of 64,000.
The energy intelligence group also claimed that the new company would rank as one of the top 15 oilfield service companies in the world.
Offshore Energy Today Staff